A recent report said a family of four traveling from Japan to Hawaii would face a US$1,500 fuel surcharge—double the rate of a year ago. PATA reports one airline is charging US$1,000 in fuel surcharges for its popular Sydney to London flight. In addition, routes are being cut or eliminated, such as American Airlines’ decision to drop its winter flights to Rome, resuming in the summer of 2009. Further flight cuts are expected this fall. In Chicago, for example, the two major airports are expected to reduce flights by 6% in November, which means 322,084 fewer seats will be available.

According to data from PKF Hospitality Research, a 1% decline in the number of seats flown within the U.S. will result in a 0.39% decline in the demand at the nation’s hotels. If airline capacity is reduced by 10%, as some have suggested, then lodging demand would fall off 3.9%. “To put this in perspective, the decline in lodging demand experienced in 2001 was just 3.3%,” says PKF President Mark Woodworth.

To make matters worse, the Travel Industry Association (TIA) has revealed that deep frustration among air travelers caused them to avoid an estimated 41 million trips over the past 12 months, costing the U.S. economy more than US$26 billion; almost US$6 billion of that was hotel business.

“As our economy and the airline industry struggle, travelers will not only be influenced by the cost of a trip, but also by the frustration with getting from point A to point B,” says Jonathan Tisch, CEO of Loews Hotels, New York City. “As this frustration mounts, more and more Americans are avoiding travel altogether.”

Tisch adds TIA’s research shows travelers’ primary concerns are delays, largely due to an antiquated air traffic control system and inefficient security screening. “These are functions that can and should be expeditiously addressed by our government,” he says.

Yes, airfares are on the rise everywhere and, as a result, hoteliers are feeling yet another pinch, as they already have to deal with the effects of rising operational costs and, in many markets, slipping demand. If prices for food, energy and fuel continue to rise, could it result in recession-induced sharp reductions in global travel? Hoteliers say only time will tell.

“I anticipate this will only worsen as time goes on,” says Jay Witzel, president and CEO of Carlson Hotels Worldwide, Minneapolis, Minnesota. “Combine the cost of gas and oil per barrel with rising food prices, decreasing housing values and the impact of rising travel costs and we could have a nasty turndown in ’09. Historically, we have a positive bounce when a new administration takes office (January ’09 in the United States). Time will tell if this will happen in the first quarter of 2009.”

Demand for travel is already slipping everywhere from the United States to Japan, where JTB Corp., a travel services company, forecasts Japanese travel abroad may fall 7% this year, including a whopping 37% decrease to China. Even in countries like Uganda, small charter airlines serving tourists going to the national parks have fuel as such a high percentage of their costs that it threatens their survival.

“My major concern around the airlines is route closures,” says Peter Lederer, chairman, Gleneagles Hotels, Perthshire, Scotland. “Scotland had more than 120 new routes developed over the past five years. They can go as fast as they arrived.” Lederer believes hotels must work together with airlines, tourism bodies and governments to do all they can to develop domestic and near markets to maximum effect. “We are further hampered at present in doing this by fuel prices equivalent to US$11 per gallon, compared to US$4 in the United States.”

Back in North America, businesses like The Leading Hotels of the World worry about the expected sharp decrease in commuter flights that serve the Caribbean islands, where many Leading members reside. As a result, it is working to further solidify private jet relationships and promote those services to its membership.

However, the pain by hoteliers might be felt the deepest in leisure destinations such as Las Vegas, Orlando and Hawaii, where passengers traditionally want cheap flights but soon won’t be able to find nearly as many. Las Vegas already witnessed a 5.1% decrease in its win in April compared to the previous year. For those in convention and business markets, experts are expecting lower occupancies on shoulder days of events, with travelers perhaps cutting stays from three nights to two. Wall Street analysts say urban and upscale hotels are best positioned to weather the storm with international travelers flying high on favorable exchange rates.

Another interesting theory is proffered by David Loeb, managing director of research, Robert W. Baird & Co., Atlanta, who believes there might be a partial offset in demand weakness from business travelers who normally might take a day trip or a one-night trip and now might add a night to their trip due to fewer travel options. “I am already hearing anecdotally that the average length of trips is increasing because people don’t want to risk missing their meetings,” Loeb says.

However, hotel executives like Joe Sita, CEO of Nakheel Hotels, Dubai, say they are seeing some softening in some markets. “Our hotels in New York, for example, are still performing well as the impact of the slowdown in the U.S. has been offset to some extent by increasing international demand, driven by the low U.S. dollar, which is attracting tourists from Europe,” Sita says. “On the other hand, in markets which rely more on domestic demand, we are starting to see a softening. Across Europe the picture varies significantly by market, although the general outlook is for a softening.”

In Europe, Kurt Ritter, CEO of Rezidor Hotel Group, Brussels, says the problem does extend to the continent’s low-cost carriers. “There are big battles taking place, and after consolidation we will see big winners and losers,” Ritter says. “On the other hand, key players such as Air France, Lufthansa and Emirates are very successful, and the demands for airplanes such as the A380 are huge.”

Ritter says the current situation has impacted leisure business. “Due to high rates for long-haul flights, people would rather stay at home or just do domestic flights,” he says. “The corporate business may also be affected due to new corporate travel policies, but we have not yet seen this at Rezidor.” In fact, he says, Rezidor’s corporate business increased in the first quarter of 2008. Also on a positive note, Ritter points to incoming business from Brazil, Russia, India and China as being quite positive. “We notice strong traffic from Russia and expect increasing figures and upcoming demand from India and China,” he adds.

In Asia, Giovanni Angelini, CEO and managing director, Shangri-La Hotels and Resorts, Hong Kong, says business travel remains essential and his company is well positioned to weather any changes, given its widespread presence in robust economic areas such as China. “We are not seeing any immediate impact due to airline developments,” he says. “It would not be surprising if executives traveling long-haul may be required to book a lower class of air travel. However, this does not necessarily impact hotel selection, as well. Any changes in current demand patterns we ascribe to the effect of special events such as the Olympics.”

Going forward, Angelini believes the key is to not “run scared” by dropping rates or cutting services. “Providing value for the money is the best response to any fluctuation in inbound travel.”

Kevin Murphy, managing director, Asiawide Hospitality Solutions, Hong Kong, suggests hoteliers in trouble spots “hunker down and start looking back into local business opportunities if you are dependent on fly-in-only business.”

In the United States, Murphy says, “Canvas your Congressmen to call for air service rationality, and push them to stop supporting unrealistic Chapter 11 work-outs for airlines. Let the failures fail. Get the government to invest in the infrastructure of better air traffic control systems and encourage more people, not less, to fly to the United States.”

Internationally, Murphy says hoteliers are no longer dependent on direct U.S. traffic, but any business slowdown that comes from these actions will eventually be felt, as will fears as to whether business and trade with the U.S. might decline in the short term.

Witzel adds that U.S.-based hoteliers have to plan for the reduction in volume and the rising prices of commodities. “I believe we have to lobby our representatives and senators to take positive action to increase the purchasing power of the dollar, end or reduce the spending on the war, create more jobs in the economy and become a more collaborative global citizen and leader.”

Direct comments to: jweinstein@reedbusiness.com